TO PAUSE AT THIS MEETING, WE ARE SEEING THE YIELD MOVE HIGHER TEN-YEAR YIELD THE HIGHEST SINCE 2007 JOINING US HERE AT POST NINE IS THE HEAD OF LIQUID CREDIT OF HPS INVESTMENT PARTNERS. WELCOME BACK GOOD TO SEE YOU. >> THANKS, SARA. >> WHAT ARE YOUR EXPECTATIONS ABOUT NOT THE FED ACTION BECAUSE WE EXPECT THEM TO PAUSE BUT WHAT THE SIGNAL WILL BE. >> THEY'LL WATCH ALL THE DATA AND THEY KEEP SAYING THEY'LL WATCH ALL THE DATA THE FED HAS BEEN VERY RESTRICTIVE AND THE ECONOMY HAS HUNG IN THERE. WE AGREE WITH YOU THEY'RE LIKELY TO PAUSE AND STAY PAUSED FOR A WHILE. I'M NOT SURE RATES WILL COME IN DRAMATICALLY I THINK THE MARKET IS PRICING IN A LOT OF RATE CUTS WE'RE NOT OF THE VIEW THAT WILL HAPPEN. >> DO YOU THINK THAT IS PARTLY WHY WE'RE SEEING YIELDS MARCH HIGHER INTO THIS MEETING WITH THE MARKET ALREADY EXPECTING A PAUSE? >> I THINK YOU'RE SEEING YIELDS MARCH HIGHER BECAUSE THERE'S A LOT OF ACTUAL SUPPLY THAT WILL COME INTO THE MARKET, ABOUT A THIRD OF TREASURIES OUTSTANDING WILL REPRICE OVER THE COURSE OF THE NEXT YEAR. AND THE BUYER SHIFTED A LOT, TOO. I THINK THERE'S A LOT OF SUPPLY COMING OUT WHICH IS PROBABLY IMPACTING SOME OF THAT. >> I ASKED JANET YELLEN, TREASURY SECRETARY YESTERDAY, ABOUT WHETHER SHE'S SEEING CONCERN IN THE BOND MARKET WITH ALL THIS ISSUANCE, THEY'LL HAVE TO RAISE A LOT OF DEBT TO PAY FOR ALL OF THESE PIECES OF LEGISLATION, THE INFRASTRUCTURE ACT, INFLATION REDUCTION ACT >> I'M NOT REALLY SEEING CONCERNS IN THE BOND MARKET ABOUT ISSUANCE OBVIOUSLY, THE FED HAS TIGHTENED MONETARY POLICY, AND THAT'S PUSHED RATES UP. BUT THERE ARE PAY FORS IN THE LEGISLATION THAT FUNDED ALL OF THESE PROGRAMS AND SO I'M NOT REALLY CONCERNED ABOUT THE IMPACT THEY'LL HAVE. CERTAINLY GREATER DEFICIT REDUCTION IS POSSIBLE. >> DO YOU THINK THE MARKET IS GETTING CONCERNED, INVESTORS ARE GETTING CONCERNED? >> I DON'T THINK THE MARKET IS GETTING THAT CONCERNED YET I THINK THE MARKET'S A BIT PECULIAR RIGHT NOW BECAUSE THERE'S RISK TO INFLATION. THERE'S RISK TO INFLATION WITH CPI. THERE'S RISK TO INFLATION BECAUSE OF WAGES, BECAUSE OF OIL, BECAUSE OF HOUSING. I THINK THERE'S RISK ON THE TECHNICAL SIDE BECAUSE OF REPRICINGS YOU MIGHT SEE A LAGGED EFFECT IN THE ECONOMY AT LARGE BECAUSE IF YOU END UP WITH SOMEWHAT HIGHER INFLATION THAN WHAT THE FED IS HOPING FOR, THAT WILL IMPACT MARGINS. IT WILL IMPACT INVESTMENT CYCLES AND WILL IMPACT CASH FLOWS BECAUSE WE MIGHT BE IN THIS ENVIRONMENT WHERE WE'RE LIVING AT THIS HIGHER FOR LONGER SCENARIO. >> AND YET YOU DON'T SEE DEFAULT CYCLES KICKING OFF HERE? >> DEFAULTS ARE SLOWLY CREEPING UP QUIETLY THE HIGH-YIELD MARKET, 3%, THE LOAN MARKET AROUND 4.5%. MOST ESTIMATES ARE FOR THE LOAN MARKET TO CONTINUE TO INCREASE SOME ESTIMATES ARE AS HIGH AS 6% TO 6.5% FOR NEXT YEAR. I THINK THIS IS SO CONTINGENT ON WHERE WE SEE INFLATION SETTLING OUT. THERE'S BEEN A LOT OF REPORTS THAT AT 3% NUMBER, WE CAN LIVE WITH THIS. AT A 4% NUMBER, DEFAULTS INCREASE TO 10%. AT A 5% NUMBER, IF YOU GO SORT OF OUT A LITTLE BIT, PEOPLE ARE REALLY CONCERNED YOU COULD GET TO 15% HIGH-YIELD DEFAULTS THEN. >> RIGHT NOW WHAT IS THE CREDIT MARKET SIGNALING AS IT RELATES TO RECESSION OR ANY OTHER BROADER STRESS >> THE CREDIT MARKET HAS BEEN BENIGN AS HAS THE EQUITY MARKET. THE EQUITY MARKET HAS BEEN ON FIRE THE HIGH-YIELD MARKET HAS BEEN ON FIRE. THE LOAN MARKET HAS BEEN ON FIRE THERE'S BEEN A LOT OF OPTIMISM THAT'S BEEN PRICED IN. I THINK A LOT OF THAT OPTIMISM IS RELATED TO, THERE'S BEEN AN IMPROVEMENT IN CPI FED FUNDS ARE SETTLING WHERE THEY ARE THERE HASN'T BEEN -- OR NORMALIZATION CREDIT STRESS THE BANKING CRISIS AND REALLY STRONG TECHNICALS IF YOU FLIP THE PAGE, WE'LL LIKELY SEE OVER THE NEXT, YOU KNOW, SEVERAL MONTHS EXACTLY THE OPPOSITE OF THOSE THINGS, WHICH IS ARE WE WORRIED ABOUT INFLATION BEING HIGHER THAN PEOPLE EXPECT? THE TECHNICAL PICTURE COULD BE UGLIER TREASURY BOND MARKET IS REPRICING. 40% INVESTMENT YIELD IS REPRICING, SO I THINK YOU'LL SEE THAT HAPPENING THAT'S SORT OF THE INVERSE ON THE TECHNICALS WE'LL SEE WHERE CPI LANDS AN
